Upper Cumberland Islamic Soc'y v. Mayer (In re Mayer)

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In re JOSEPH J. MAYER dba HCC CONTRACTORS NICOLE D. MAYER fka NICOLE D. VINCIL Debtors

UPPER CUMBERLAND ISLAMIC SOCIETY Plaintiff v. JOSEPH J. MAYER Defendant

No. 3:20-bk-31861-SHB

Adv. Proc. No. 21-ap-3003-SHB

United States Bankruptcy Court, E.D. Tennessee

March 30, 2023

Chapter 7

HODGES, DOUGHTY & CARSON, PLLC Jason L. Rogers, Esq. James F. Parker, Esq. Post Office Box 869 Knoxville Tennessee 37901 Attorneys for Plaintiff

LAW OFFICES OF MAYER & NEWTON John P. Newton, Jr., Esq. 8351 E. Walker Springs Lane Suite 100 Knoxville, Tennessee 37923 Attorneys for Defendant

MEMORANDUM

SUZANNE H. BAUKNIGHT UNITED STATES BANKRUPTCY JUDGE

After Defendant failed to complete a construction project for Plaintiff and then filed for Chapter 7 bankruptcy protection Plaintiff initiated this adversary proceeding to seek a nondischargeable judgment for damages allegedly caused by Defendant's failure to properly perform under the parties' contract and to object to Defendant's Chapter 7 discharge. The Complaint to Determine Dischargeability of Debt and Denial of Discharge ("Complaint") was filed timely on February 1, 2021, raising claims under 11 U.S.C. § 523(a)(2)(A), (a)(4), and/or (a)(6) and 11 U.S.C. § 727(a)(3). [Doc. 1.] Defendant answered by denying Plaintiff's allegations and asserting that Plaintiff is not entitled to any relief. [Doc. 13.]

The trial of this adversary proceeding was held over four days in November 2021 and January 2022.^[1] The trial record consists of the Stipulation of Undisputed Facts included in the Joint Pre-Trial Statement filed on November 9, 2021 [Doc. 41]; seventy-four exhibits entered into evidence; and the testimony of five witnesses: Dr. Ali Alouani ("Dr. Alouani"), Dr. Wali Kharif ("Dr. Kharif"), Almod Soliman ("Mr. Soliman"), Debtor Nicole Mayer ("Ms. Mayer"), and Defendant.^[2] According to the Joint Pre-Trial Statement, the issues before the Court are (1) whether Plaintiff is entitled to a nondischargeable judgment against Defendant and, if so, the amount, and (2) whether Defendant should be denied his discharge under 11 U.S.C. § 727(a)(3).^[3]

I. FINDINGS OF FACT

A. The Parties

Plaintiff is a Tennessee not-for-profit corporation that promotes and supports the Muslim community in the Upper Cumberland region of Tennessee, with its principal office in Cookeville, Tennessee. Plaintiff is administered by an executive board that includes volunteers and other constitutional members who serve as officers (the "Board"). Both constitutional and volunteer members of the Board have voting privileges over administration of and decision-making for Plaintiff. At the time of trial, Dr. Kharif^[4] was a member of the Board, serving as its Secretary, Treasurer, and Registered Agent, and Dr. Alouani^[5] was a volunteer member of the Board but not an officer.

In approximately 2009, Plaintiff purchased real property at 323 North Walnut Avenue, Cookeville, Tennessee (the "Site"), intending to build a mosque and community center to attract talent to the area and Tennessee Technological University and to establish a dialogue with the community (the "Project"). Plaintiff received approval for its architectural design, conducted fundraising, and commenced a geotechnical engineering study.

Dr. Alouani was designated by the Board as the point-of-contact for the Project, and he was authorized to find a general contractor for the proposed construction. Plaintiff hired Mr. Soliman as its owner's representative for the Project. Mr. Soliman had many years' experience as an architectural designer and, before 2018, had owned a construction company. He was involved in preparation of the design documents for the Project, including working with the city engineer on modifications beginning almost two years before ground-breaking.

In June 2018, Plaintiff received the geotech report from GEOServices, LLC ("GEOS Report") that revealed potential issues concerning subsurface soil suitability (i.e., soft soil) and water issues that would require performance of significant below-grade work to develop the Site. Dr. Alouani testified that the Board understood that based on the GEOS Report results, Plaintiff could not build a structure on the Site unless the soil and water issues were resolved first.

Defendant began his career in the construction industry by working as a tile subcontractor in the 1990s before obtaining his general contractor's license in 2006. To meet the State of Tennessee's requirement for assets sufficient to support the requested monetary limits for his license, Defendant identified "HCC Contractors" as a partnership on the licensure applications with the Tennessee Board for Licensing Contractors. The first iteration of the licensing application for HCC Contractors identified Defendant's father-in-law, Donald Batho, as a partner. The second iteration identified a business associate, Michael Nesmith, as a partner. Defendant, however, admitted that neither Mr. Batho nor Mr. Nesmith was ever an actual partner of HCC Contractors. The original $350,000.00 monetary limit for the contractor license issued to HCC Contractors, ID #59352, increased in 2014 to $600,000.00, and each subsequent renewal obtained by Defendant with the State of Tennessee indicated that there were no changes to the underlying partnership or assets thereof.^[6] Although Defendant continuously represented to the State of Tennessee that he was a general partner of HCC Contractors, he identified HCC Contractors as a sole proprietorship in his Voluntary Petition and on his tax returns. [See Bankr. Doc. 1 at p. 2.]

The majority of Defendant's experience as a general contractor consisted of renovation work on existing structures. He testified that he lacked significant experience with projects involving below-grade work or subsurface soil and water issues that required significant excavation or as a general contractor for commercial projects. Specifically, before he engaged with Plaintiff, Defendant had worked on two projects that required supervision of geological services engineers.

When Plaintiff's attempts over several months to hire contractors local to Putnam County and in Nashville were unsuccessful, Mr. Soliman suggested HCC Contractors as the potential contractor for the Project. Mr. Soliman knew Defendant because he had renovated a portion of a building that housed a restaurant that Mr. Soliman owned. Mr. Soliman and Dr. Alouani, as representatives for Plaintiff, met with Defendant more than once in early 2019, first at the Site^[7]and again at the Cookeville McDonald's^[8] to discuss hiring HCC Contractors for the Project. Mr. Soliman and Dr. Alouani provided Defendant with construction plans and the GEOS Report and briefed Defendant about the subsurface soil and water issues at the Site, emphasizing that any general contractor hired for the Project must have significant experience resolving subsurface soil and water issues. Defendant advised Dr. Alouani and Mr. Soliman that he had experience with construction projects that were similar in nature, size, and complexity, including resolution of complex subsurface soil and water issues. As an example, Defendant referenced his role as contractor for the Hindu Community Center located near Knoxville. With Dr. Alouani's approval, Mr. Soliman recommended to the Board that Plaintiff hire Defendant for the Project.

After reviewing several versions that were drafted primarily by Defendant, Plaintiff and Defendant entered into a Construction Contract (the "Contract") on February 26, 2019, for the construction of a community center. Dr. Alouani negotiated the terms with Defendant related to the contract price of $550,680.00, the breakdown and amount of payments at various stages of completion, and the division of the Project into three distinct phases of construction and payment: phase one, which included site preparation, excavating, grading, and subsurface utility work ($161,000.00); phase two, which included construction of the building ($336,680.00); and phase three, which included the final requirements to obtain a certificate of occupancy ($53,000.00). The Contract required Defendant to commence phase one on or before March 24, 2019, and to fully complete the Project no later than August 25, 2019.

The Contract, which is governed by the laws of the State of Tennessee, included Defendant's contractor's license number and required Defendant to provide all services, labor, machinery, and materials necessary to complete the Project and to provide construction and contracting services in a workmanlike manner in compliance with all applicable federal, state, and local laws and regulations, utilizing a standard of care equal or superior to that used by similar service providers on similar projects within the same community and region. In addition, Defendant agreed to indemnify and hold Plaintiff harmless from all claims, loss, liability, and expense, including actual attorneys' fees, arising out of or in connection with Defendant's scope of work under the Contract, even if Plaintiff was partially responsible for the same. Material default under the Contract included (a) Plaintiff's failure to make a payment when due; (b) insolvency and/or the filing for bankruptcy by either party; (c) a lawsuit or foreclosure of any kind by either party; and (d) the failure of Plaintiff to make the Site available or of HCC Contractors to "deliver the Services in the time and manner provided for" in the Contract.

The Contract provided for phase one work in the total amount of $161,000.00 to be paid over three draws: an initial draw of $80,500.00 payable at the time of the contract ("First Draw"); a second draw of $50,000.00 payable at the direction and approval of Mr. Soliman when work had progressed ("Second...